Final answer:
When a bond is purchased at a discount in the secondary market and then sold prior to maturity, the amount of discount can be considered as interest income earned on the investment.
Explanation:
When a bond is purchased in the secondary market at a discount, the amount of discount treated as interest income when the bond is sold prior to maturity is calculated by the difference between the face value of the bond and the purchase price. This discount is considered interest income because it reflects the return earned on the investment. For example, if a bond with a face value of [tex]$1,000 is purchased for $[/tex]900, the $100 discount upon sale is treated as interest income.
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